Match Group, Inc. quarterly report, Q2 FY2018

Vollständiges Dokument

Filing summary

Important scope note: The supplied filing is IAC/InterActiveCorp’s Form 10-Q for the quarter ended June 30, 2018, filed August 9, 2018—not a standalone Match Group, Inc. 10-Q. It reports Match Group as a segment. IAC held an 81.2% economic interest and 97.6% voting interest in Match Group at quarter-end. Unless otherwise noted, figures below are IAC consolidated; Match-specific figures are identified separately.

Business context and reporting period

IAC’s portfolio included Match Group, ANGI Homeservices, Video, Applications and Publishing. The filing compares the three and six months ended June 30, 2018 with the corresponding 2017 periods. Daily Burn moved from Video to Applications effective April 1, 2018, affecting segment comparisons.

Financial performance and liquidity

  • IAC consolidated, Q2: Revenue was $1.059 billion, up 38%; operating income was $168.4 million, up 123%; net earnings attributable to IAC shareholders were $218.4 million versus $66.3 million; diluted EPS was $2.32 versus $0.70. Operating margin was 16% versus 10%.
  • IAC consolidated, first half: Revenue was $2.054 billion, up 34%; operating income was $258.4 million, up 129%; net earnings attributable to IAC shareholders were $289.4 million versus $92.5 million; diluted EPS was $3.05 versus $0.99. Operating margin was 13% versus 7%.
  • Adjusted EBITDA, a non-GAAP measure: IAC reported $265.0 million for Q2, up 83%, and $453.4 million for the first half, up 84%. Margins were 25% and 22%, respectively, versus 19% and 16% in 2017.
  • Match Group segment: Q2 revenue was $421.2 million, up 36%; operating income was $150.2 million, up 81%; Adjusted EBITDA was $175.6 million, up 60%. First-half revenue was $828.6 million, up 36%; operating income was $262.4 million, up 85%; Adjusted EBITDA was $313.3 million, up 60%. Match revenue growth was driven by higher average subscribers, particularly at Tinder; total ARPU rose 8% in Q2.
  • Cash flow and liquidity: IAC generated $379.8 million of operating cash flow in the first half, versus $157.7 million a year earlier. Investing used $165.6 million and financing used $202.7 million. June 30 cash and cash equivalents were $1.645 billion, with an additional $120.4 million of marketable securities. The filing cautions that Match and ANGI cash is held by separate public subsidiaries and is not freely accessible to IAC.
  • Debt: IAC consolidated long-term debt, net of discounts and issuance costs, was $1.982 billion, plus $13.8 million current. Match Group’s listed gross debt was $1.275 billion: a $425 million term loan and $850 million of senior notes. IAC’s and Match’s $300 million and $500 million revolving facilities, respectively, were undrawn.
  • Other balance-sheet items: Current assets were $2.347 billion and current liabilities were $845.7 million. Deferred revenue was $375.1 million. Total assets were $6.235 billion.

Changes versus the prior comparable period

  • Match Group’s Q2 revenue growth reflected international direct revenue up 53% and North America direct revenue up 24%; average subscribers rose 36% internationally and 20% in North America. The filing attributes subscriber growth principally to Tinder.
  • ANGI revenue increased 63% in Q2, reflecting the inclusion of Angie’s List, marketplace growth and European business growth. Marketplace service requests rose 30% to 6.8 million and paying service professionals rose 23% to 202,000.
  • Publishing revenue rose 76% in Q2, while Applications revenue fell 1%; Applications revenue declined 9% in the first half, with partnership and desktop application weakness cited. Video revenue rose 14% in Q2, but its Adjusted EBITDA loss widened.
  • IAC’s reported earnings included substantial investment gains: Q2 other income, net, was $171.1 million, including $126.4 million of unrealized equity-investment gains and $27.3 million of realized gains. The corresponding first-half total was $166.5 million. These items materially elevated net earnings and are not operating revenue.
  • Comparability was also affected by the 2017 ANGI combination, the 2018 adoption of revenue-recognition guidance, the transfer of Daily Burn between segments, and the 2017 sale of The Princeton Review. Revenue-recognition adoption reduced reported revenue by about $2.0 million in both Q2 and the first half; its effect on operating income was a $0.6 million decrease in Q2 and a $5.2 million increase for the first half.

Outlook, risks, contingencies and unusual items

  • The filing provides no specific Match Group revenue or earnings guidance. IAC expected 2018 capital expenditures to be approximately 20% higher than in 2017, driven partly by ANGI investment.
  • Management said existing cash, marketable securities and expected operating cash flows should fund normal operating needs, capital expenditures, debt service and commitments for the foreseeable future; it also warned that lower demand or limited access to financing could adversely affect liquidity.
  • Google generated $204.9 million, or 19% of IAC consolidated revenue, in Q2. The filing warns that Google policy changes, including Chrome changes scheduled for September 2018, could affect desktop-product distribution and Applications revenue. Google agreements accounted for a particularly high share of Applications and Publishing revenue.
  • Other identified risks include competition, user migration to lower-monetizing dating products, rising app-store fees, cybersecurity and privacy, foreign exchange, indebtedness, acquisitions and integration, and dependence on third-party distribution platforms.
  • Match Group faced a consumer lawsuit challenging Tinder’s age-tiered pricing; an appellate court had revived the claim and the case returned to trial court. A separate Match IPO securities class action was orally dismissed without leave to amend in June 2018, with a formal order pending in the filing’s account.
  • IAC reported no pending legal proceeding that management believed would individually or collectively have a material adverse effect, while noting litigation and tax contingencies remain inherently uncertain. Its IRS audit covered tax years 2010–2016.
  • Stock-based compensation was a significant expense and cash consideration: IAC reported $57.6 million in Q2 and $116.6 million in the first half. Net-settlement withholding taxes contributed to financing cash outflows. The filing also noted approximately $30 million of expected remaining 2018 stock-based compensation tied to the ANGI combination.

Most important facts for investors to verify

  • Confirm whether the intended filing is Match Group’s standalone 10-Q; the supplied document is IAC’s filing and does not provide a full standalone Match Group financial statement set.
  • Separate Match segment operating performance from IAC consolidated results, including the effects of noncontrolling interests and subsidiary-level cash and debt restrictions.
  • Assess how much of IAC’s reported earnings growth came from recurring operations versus equity-investment gains and unusually low effective tax rates.
  • Check subsequent developments in Tinder’s age-pricing litigation, the Match IPO case, Google’s policy changes, and the expected 2018 capital-spending increase.
  • Review the filing’s non-GAAP Adjusted EBITDA reconciliations and the impact of stock compensation, app-store fees, and segment reclassifications on comparisons.